Budgeting On A Fluctuating Income

Q. I would like to know if anyone has any advice or knows any good resources for budgeting on a fluctuating income. My husband is self-employed in the construction business, I am a stay-at-home mom with 5 kids. His income can fluctuate from $500-$4000 a month. This amount also includes the money we use for business expenses such as tools, gas, materials etc. We always manage to just barely get by, of course many times we are late on bills, etc. Then when we make more money we are having to play catch-up and it is very hard to get ahead. I would appreciate any advice from your wonderful readers.

The first thing I would do is set up a budget so that I knew exactly what my monthly bills are. Then I would set up a series of payment envelopes, marked with the names of each of the bills (electric, insurance, etc.). On the months you have extra, put more than one month’s payment inside the envelopes. Do not spend the extra that you have! Pay the month’s bills from the envelopes, but do not touch what is left over; it is "saved" for the next month. Add to it as you are able, but keep it in reserve until it is due. If you are disciplined enough, you can keep from spending what seems to be a windfall one month, and reserve it for the times when you have less. It’s sort-of like "income averaging". – W.H.

The reader asks how to budget on a fluctuating budget. I have read alot on budgeting and have worked this budget for 3 years.

First, split your bills into monthly and irregular(those that need paid every few months, six months or yearly). Determine the amount you need to pay your monthly bills. Then divide each irregular bill by 12 (or 10 might be better). Add those amounts up and the sum is what you need to save each month towards those bills. Add the amounts for montly bills and irregular bills together. This is your monthly income. Any money made each month over that amount goes into an overflow column. If you have a month where the actual income falls below this monthly income amount, withdraw the amount needed from the overflow.

Example:
Monthly bills
Rent $670
Groceries $150
Utilities $200
total: $1020
Irregular bills
car insurance $240/six months $40
vet $120/yearly $10
school fees $240/yearly $20
$840 $70
Add: $1020
$70
$1090 monthly income
Hope this is helpful – Mary Ann

The best way to handle a budget in this scenario is to average everything out and spend accordingly. This will take some time to do if you haven’t already kept a written record of ALL your expenses, but it’s worth it.

The first thing to do is add up all of your bills – even the ones paid yearly. This includes weekly living expenses also, like groceries – also include a miscellaneous category of anything and everything that you spend money on not mentioned elsewhere. It is also wise to add in 10% or 15% extra for emergencies, price increases, etc. Add them all up for a 12-month period (weekly X 52, monthly X 12, etc.) and then divide them all by 12. This is how much money you need each month to make ends meet.

Next, do the same with your income. Add it all up for a year and divide by 12. Only include the income from hours worked – don’t include any bonuses, other incentives, etc., unless they are as "guaranteed" as the regular income is. This shows how much money you have to spend for your expenses, so hopefully it is larger than the amount in the first paragraph. If not, you may need to make some adjustments such as eat out less, bring lunch to work every day, watch what you might waste or throw away, etc.

If money is tight, then the idea is to hold on to that money as long as possible and do not spend what you do not need to spend. Pinch those pennies until they scream! All it takes is a plan and the discipline to live by that plan – working on the attitude also helps. I look at my spending plan as a game instead of a deprivation (i.e., let’s see how low I can keep my electric bill this month, or let’s see if I can beat last month’s record deposit amount into savings). You can do it! – Tracy

Make a master schedule for bills that you have regularly such as electric and rent. Next include bills that you get throughout the year such as car insurance. Make a category for food, clothing and these type of bills. Include an entertainment category and a repair (emergency) category . Put these all down one side . Across the top put the month names such as January. You need to break down what you need to pay each month regardless of income for all your bills. Some months you will have higher electric bills and others you will have car insurance premiums due. You need to put money into a special account, envelope or drawer to cover these ‘extra’ bills when your income drops. – CSinbad

The basic idea is to add up (maybe using last year’s records) total income for the year, and divide by 12. In months with more income, reserve what’s left to help cover months with less. Eventually one can set aside a bit of savings which will help to cover occasional shortfalls. Spending should be constant, not variable with income. Sometimes expenditures can be juggled to fit one’s payment schedule (call the business/creditor in question and see if the due date can be changed. Utility bills can’t be, but many others can, including credit cards.) An excellent website devoted to budgeting and money management is cheapskatemonthly.com. Books by Mary Hunt are also extremely useful. – Marianne

First, average your yearly income. That means if your yearly income is $23,000, you only have $1,983 you should spend in a given month. 23000 divided by 12. This is not an easy way to live, but, if you can stick to it life gets much simpler in 6 to 12 months. Anything over $1,983 goes into savings whether it is 50 cents or $2,000. The first few months may be somewhat lean but once you get adjusted to living on just the monthly average of your annual income it makes life incredibly easier. You will have to deal with fixed expenses and there will be lean months especially in the beginning. However, this method does prevent you having to play catch up. Living on the average monthly income can be easily sabotaged by either spouse or older children. You may need to sit down, hammer out a budget and then have everyone who has input into how money is spent sign a contract agreeing to support the new way of living/spending money. Having lived on a fluctuating income at one time, my heart goes out to you, but we are living proof that it can be done without going further into debt and keeping your credit rating reasonably good. – Mary

When my parents decided to go country, as in live in the country, money was tight. But, friendly neighbors helped them when it came to planting a garden. We were lucky and had a bumper crop of corn, green beans, potatoes, broccoli, tomatoes. etc. We learned how to freeze and can. My mother learned how to make jam and jelly. Not only was it less expensive, but the home-grown food was delicious. Imagine, one package of green bean seeds costing about $1.25 grown properly made 1-2 rows of plants that yielded a lot of frozen green bean packages. We ended up having to purchase 2 freezers. By the way, upright freezers are always easier and better than chest freezers. forgot to mention that making a garden around your house doesn’t necessarily mean a plot with rows. Also, vegetable gardens are now laid out as landscaping plants. Good luck. Diana

One thought on “Budgeting On A Fluctuating Income

  1. Lori says:

    Hi Amy,

    Your question caught my eye and I took it to heart. I owned a business and dealt/deal with a similar situation.

    1. Don’t Pay your bills or do Any legal transferring of information from your cell phone or laptop. So…No paying the water bill at Starbucks:))! Huge mistake.
    Don’t ever send your drivers license, family social security numbers, any account numbers, bank names, etc over any of your portable devices.

    2. Get a PC and landline.

    3. Since your husbands income fluctuates to hard to control extremes, I wouldn’t count on it unless you have a predictable base that is 1 year long at least. If the base fluctuates at all which I have a feeling it may be different certain months….I would go to his work history and evaluate a possible negotiation to increase the base and/or go to a company with a base and lower commission.

    4. Your utilities need to be possibly looked at. Do they stay the same? Mine were All over the place. One month my water was $800.00 the next $75.00. So, apply for all utilities discounts and apply for low energy opportunities that you need. Toilets, refrigerators, etc shoukd be monitored and replaced for many.

    5. Give every company, school, etc your landline (not your cell). Have a business email or utilities email separate from your personal email and your personal cell. Secure your PC and back up consistently.

    6. Your husbands commissions:

    After he pays taxes, ss, etc. Look for investments!
    I would say put 15%-20% of his commissions into moderate at times barely higher risk accounts making 15%-25%+. Try to accru. This means each month it will compound itself :)) monitor it Daily! Want the interest rates Daily, the Pres. And financial news. Move it down to moderate if everyone starts worrying but, Don’t pull it out! Let them all worry and just ignore it. Everything is cyclical.
    The 65% commission left is I would say put in a moderate investment 8%- 16%.

    ***My guesstimates on percentages are just that:))

    You need a solid predictable base.
    Get a solid base that can pay all your basic bills.

    Reminder: Never Ever do any of this from a cell phone or laptop in a hotspot or public place…I’ve had horrendous consequences.

    The last 15% can be you conservative investment like a CD or money market and this can be a side savings for vacations or Christmas or s special event.

    Lastly, get 2 credit cards. I like AMEX. Charge $50-$100 a month and pay them off Every single month.

    ***Your credit and interest rate monitoring are your new BFF’s:))

    Monitor your credit report. You get yearly free ones and if they’re already taken…hmmm..someone else has gotten to them before you. I would get mine at the beginning or end of the year for taxes and then new year planning.

    :))) – Lori (hope that helps)

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